Don’t count on the expats

Doaa A. Moneim, Thursday 24 Aug 2023

Despite adopting various unconventional means to attract dollar funds, these may be insufficient to cover Egypt’s needs for hard currency.

Don t count on the expats
Expats are invited to invest in hard currency saving instruments


The state-owned Misr Life Insurance and the National Bank of Egypt (NBE) last week launched their first pensions certificates in dollars for Egyptians working abroad.

The new US dollar pensions certificates, called Maash Bokra or “Tomorrow’s Pension,” are available in maturities of between five and 15 years for individuals aged between 18 and 59. Targeted customers can purchase them starting at a value of $500, and they can also make additional payments to a minimum of $50 and a maximum of $10,000 annually.

They are allowed to set the age of disbursement of the resulting pension, which can take place at 65 years old.

Some weeks ago, several state-owned and private banks also issued three-year US dollar-denominated certificates of deposit (CDs) that also targeted Egyptians working abroad with an annual yield of seven per cent and nine per cent. The new certificates are being offered to attract much-needed hard currency to cover Egypt’s financing gap.

However, such steps to tackle the US dollar shortage “are important, but they are not enough, and they will not pay off in the near future,” banking and financing expert Ahmed Shawki told Al-Ahram Weekly.

Shawki said the dollar certificates aimed to diversify financing tools and to attract dollars to the local market, as Egypt races to close the gap between the official and the parallel exchange rate market.

The International Monetary Fund (IMF) estimates the financing gap Egypt will experience to 2027 at $17 billion, while US investment bank Goldman Sachs has estimated in a recent report that the dollar coverage Egypt needs to balance the local market is $5 billion.

After losing some 50 per cent of its value, the Egyptian pound has been performing at its weakest level since March 2022, when the Russian-Ukrainian conflict broke out. The dollar is currently trading at LE31 compared to about LE15 in March 2022.

Remittances by Egyptian expats abroad declined by 23 per cent during the first half of the 2022-23 fiscal year to $12 billion, down from $15.6 billion in the corresponding period a year earlier, according to data published by the Central Bank of Egypt (CBE).

Since March 2022, the gap between the pound’s official exchange rate of LE31 per dollar and the parallel rate that ranges around LE38 to LE40 per dollar has encouraged Egyptian expatriates to remit money through informal channels, including cash, allowing them to benefit from the weaker rate, said head of MENA Country Risk, Global Banking and Financial Services at ratings agency Fitch Solutions Ramona Mubarak.

As a result, remittance inflows to Egypt dropped by 27 per cent in fiscal year 2022-23 (July 2022 to June 2023) to a six-year low of $23.3 billion, Moubarak said.

“We expect that the authorities will allow the currency to weaken around September/October 2023 ending the year at LE38 per dollar and leading to narrower spreads. Once the volatility that will follow the currency adjustment recedes, expatriates will return to the official market, though remittances will remain significantly below the 2021-2022 peak of $31.9 billion,” he said.  

“The government should conjure up other ways to boost US dollar liquidity rather than depending on expats,” Shawki commented.

In July, Prime Minister Mustafa Madbouli said at a press conference that the government planned to boost the country’s US dollar liquidity to $191 billion up until 2026, mainly through revenues from tourism, the Suez Canal and commodity exports, as well as remittances from abroad, maritime services, and outsourcing services extended to the ICT sector.

But according to Shawki, the government must promote the tourism sector on a larger scale and expand offers for tourists to encourage them to stay longer and spend more, as a result revitalising the local market.

* A version of this article appears in print in the 24 August, 2023 edition of Al-Ahram Weekly

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